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Much has been written about the recent outperformance of growth stocks vs. value stocks. We have seen inklings of a rebound in more traditional businesses over the last few weeks, but a massive discrepancy remains. The above chart highlights the starkness of the contrast between growth and value.
As we’ve said before, there are real reasons for the outperformance, particularly among technology stocks. Interest rates are low and those companies are typically growing at strong rates despite the pandemic. That means future cash flows are worth a lot more, should they materialize.
That said, there are incredibly accurate and high conviction judgements about what the future looks like required to justify some company valuations at this point. We’ve never been that great at predicting the future.
Bonds have historically provided three things for portfolios – income, liquidity, and insurance against falling stock prices. There are some fairly obvious reasons to question whether fixed income is currently fulfilling two of those objectives.
With the 10-year treasury note yielding under 0.7% at the time of writing, investors are receiving a negative return after inflation (which is another conversation all together). When it comes to the insurance portion, theoretically interest rates could decline further, but there really isn’t much left to give at this point. As James Grant famously put it:
The ''risk-free return'' could turn out to be a ''return-free risk”
A classic piece from Michael Phelps coach, Bob Bowman. This is more of a story than a list, so don’t fall into the trap of thinking it is just another piece of “secrets to success” clickbait. There are many quotable thoughts here:
After you get your plan in place, the hardest thing to do sometimes is to take action. We all like to sit around and talk about what we would like to do. We love to sit around and think about it. I am a big thinker. I think some things to death sometimes. If we ever talk about an idea or something with these guys, the next thing I know they are on the phone making something happen. I mean: Right then!
A short article in the vein of the book The Coddling of the American Mind. The challenge faced by many parents today is though we actually know that allowing children their independence creates more mature and capable adults, the world feels like a dangerous place in many ways. In our view, finding the right balance is one of the most challenging parts of parenthood.
It should be noted that the internet is not the cause of these problems. Rather, the internet is the precarious reservation onto which culture has been driven, bleak and uncanny, inhuman in scale. And even the internet is increasingly monitored and reshaped by the same malignant tiling system that drove culture here in the first place.
Continuing the thought process of this month’s first article, there is a massive challenge for both institutions and individuals if bonds are a less viable asset class. It requires a fundamental rethinking of asset allocation and return targets. The options are as follows:
- Take more risks
- Change your asset allocation/investment strategy
- Lower your expectations
- Spend less (or make more)
We believe the best solution to clearly be option 2, though we also acknowledge that increased complexity can be a challenge. The shift in thinking feels inevitable, but it will also be gradual.
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